Cash Flow for a Contractor Business: Getting Paid On Time

Cash flow for a contractor business kills more operators than bad jobs do. The model is simple on paper - win the work, sub it out, invoice the client, pay the sub, keep the difference. But most people running it end up financing jobs they never agreed to fund, because the client is 30 days late and the sub's bill was due on Friday.

That gap is the problem. Here is how to close it.

Why does cash flow for a contractor business go wrong?#

You are in the middle. You owe money to someone before the person who owes you has paid.

A plumber on a day rate waits for his own wages. A housing association waits for its rents. You are caught between both - and the moment that gap gets wide enough, you are either asking your subcontractor to wait, or you are drawing from your own account to cover a job you have not been paid for yet.

The good news: the gap is almost entirely within your control. It is a sequencing problem, not a cash problem.

I have written elsewhere about how to structure deposits and staged payments so the client's money always arrives before the sub's bill. If you have not read that, start there. This post is about what to do when the structure is right but clients still pay late - and how to protect yourself in the contract before it becomes a fight.

What happens when you invoice late?#

Most operators create their own cash problem by invoicing slowly.

Job finishes on a Friday. Invoice goes out the following Wednesday because you are busy on the next one. Payment terms say 14 days. The client pays three days after that. The sub's bill was due a week ago.

Send the invoice the same day the job is done. Or the morning after, at the latest. Every day you delay is a day you push the payment further from the bill you already owe.

Set a calendar reminder on job completion. Make invoicing the last step of the handover, not something you get to when you have a quiet moment.

What does the Late Payment Act actually do for you?#

The Late Payment of Commercial Debts (Interest) Act 1998 is the law most small contractors know exists and almost none of them use.

It gives you the right to charge statutory interest on any late B2B invoice in the UK at the Bank of England base rate plus 8 per cent. In 2026 that works out at around 11.75 per cent per year. You do not need to go to court first. You state the right on the invoice and in your contract, and the interest starts running from the due date.

On top of the interest, you can claim fixed compensation for the cost of chasing the debt:

• Debts under £1,000: £40
• Debts from £1,000 to £9,999: £70
• Debts of £10,000 and above: £100

These are per invoice. They are not large numbers on their own, but they matter for one reason: they show you are not writing the invoice off. A client who receives a formal note saying statutory interest is now running and compensation is due pays faster than one who gets another "just following up" email.

Check the current statutory rate at legislation.gov.uk or payontime.co.uk. The rate changes every six months.

Last checked: 12 October 2026.

How do you write payment terms that actually protect you?#

The Housing Grants, Construction and Regeneration Act 1996 - what most people in construction call the Construction Act - requires every construction contract to contain payment provisions. If yours does not, the Scheme for Construction Contracts fills the gap automatically and sets a default final payment date of 17 days from when payment falls due.

Most operators use contracts that say something like "payment within 30 days." That is better than nothing, but it creates arguments about when the 30 days start. Write it precisely instead:

• "Payment due 14 days from the date of this invoice."
• "Stage 2 payment of £X due within 7 days of first-fix sign-off."
• "Final balance due on the day of practical completion sign-off."

Tie the payment trigger to something specific and visible - a milestone, a sign-off, a certificate - not "completion" or "when the client is happy." Define what sign-off means, who signs, and what date is used.

Include a clause stating that statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 applies on amounts outstanding beyond the due date. This is not aggressive - it is standard commercial practice, and it tells the client from the start that late payment has a calculable cost.

Your construction contract is where this language needs to live. A handshake or a WhatsApp confirmation is not a payment term.

What to do when a client goes quiet#

The sequence that works:

Day of invoice. Send the invoice. Confirm receipt by email with a read receipt or a tracked link if your invoicing software supports it.

Day 3 after the due date. A short message: "Invoice [number] was due on [date]. Please confirm it is in your payment run." Not aggressive - a factual reminder that they have seen the invoice.

Day 7 after the due date. A phone call, not an email. Calls get answered. Ask when the payment is being processed, not whether they plan to pay.

Day 14 after the due date. A letter before action. State the amount, the original due date, the interest accrued, the fixed compensation, and a final payment date - usually 7 days from the letter. If you have a contract, cite the clause. This step moves most clients.

Most problems resolve by day 7. The ones that do not usually needed the formal letter anyway.

What to do about a cash gap right now#

If you are already in a hole - sub bill due before client payment lands - three options:

Ask the sub. If you have a good relationship and the delay is genuinely short-term, most experienced subbies will give you a few extra days. Do not make it a habit. Once it becomes your normal pattern, they start pricing the risk into their rate.

Release a retention early. If you are holding back 5 to 10 per cent of a sub's bill for snagging and the job is signed off, release it now. It moves cash to where it is needed.

Invoice finance. Some providers will advance 80 to 90 per cent of an outstanding invoice within 24 hours, releasing the balance minus a fee when the client pays. Useful for a one-off gap, expensive as a permanent solution. Understanding the VAT on your invoices matters here too - invoice finance facilities typically work on the net figure, and the VAT element sits separately.

The real fix is upstream#

Once cash flow is consistently tight, it usually means the payment terms in the contracts are too loose, the invoicing is going out late, or the staging is not aligned tightly enough to what the sub owes you at each point.

Fix the terms. Invoice the day the work is done. Stage the payments to milestones, not dates. Use the Late Payment Act when clients push past the due date - it is there specifically for this.

The underlying model of construction arbitrage - win the work, sub it out, keep the margin - works on cash flow by design, because you are not buying materials speculatively and you are not carrying wages for a permanent team. The only reason it breaks down is operator sequencing. Get the sequencing right and the cash follows.

For a full picture of the numbers - what margins are realistic, what the model actually earns, and what the common pitfalls are as the business scales - how much money contractor arbitrage covers it. And if you want to see how other operators are handling payment terms, staging, and the cash-flow side of running jobs, the implementation detail is at contractorclub.vip.

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Frequently asked questions#

Can I charge interest on a late invoice in the UK?

Yes. Under the Late Payment of Commercial Debts (Interest) Act 1998, you are entitled to charge statutory interest on late B2B invoices at the Bank of England base rate plus 8 per cent - currently around 11.75 per cent (2026). You can also claim fixed compensation: £40 on debts under £1,000, £70 from £1,000 to £9,999, and £100 on £10,000 and above. You do not need to go to court to claim it - state it on the invoice and in your contract.

What payment terms should I put in my construction contracts?

State the due date as a fixed number of days from the date of invoice - 14 days is reasonable for small and mid-sized jobs. Define what triggers each staged payment (a milestone, not "when convenient"). Include a right to charge interest under the Late Payment of Commercial Debts (Interest) Act 1998 on late payments. If the contract is silent on payment provisions, the Scheme for Construction Contracts applies and sets a default final payment date of 17 days from when payment falls due.

What if a client refuses to pay the final invoice?

Send a formal letter before action citing the amount, the due date, and your intention to add statutory interest under the 1998 Act. Most clients pay when they realise the interest clock is running and you have it in writing. If they still will not pay, small claims (up to £10,000) or the County Court money claim online are the next steps. Do not write the debt off quietly - it signals that late payment has no cost.

Is invoice financing worth it for a small construction arbitrage business?

For a business turning over a few hundred thousand a year, invoice finance fees - usually 1 to 3 per cent of invoice value - can eat into thin margins quickly. It is useful as a bridge if a single large client is holding up a significant payment and sub bills are due. For day-to-day cash management, tight payment terms and fast invoicing are cheaper fixes. Use invoice finance as a last resort, not a first one.